Dollar buoyed as healthy U.S. jobs fuel Fed taper talk

© Reuters. FILE PHOTO: A picture illustration of U.S. dollar, Swiss Franc, British pound and Euro bank notes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel

By Hideyuki Sano

TOKYO (Reuters) - The dollar was buoyant on Tuesday, pushing the euro to a four-month low, as a run of strong U.S. job figures solidified expectations the U.S. Federal Reserve could soon start tapering its massive coronavirus-driven stimulus.

The prospect of the Fed's reduced bond-buying pushed down U.S. bond prices, lifting their yields and hitting other safe-haven assets that had benefited from low returns from U.S. debt, such as the Swiss franc and gold.

The Swiss franc has lost about 1.6% over the last two sessions against the dollar to trade at 0.9196 franc to the dollar.

The franc weakened even against the single currency to 1.08045 per euro, reversing its rise earlier this month to a nine-month high of 1.0720.

Gold licked its wounds at $1,736.5 per ounce, having lost 4% in the last two sessions and briefly falling to as low as $1,667.6 on Monday, its weakest since April 2020.

The euro slipped to a four-month low of $1.1732 and last stood at $1.1739.

"The market is repricing the Fed's tapering. It has only begun and I expect market adjustment to continue. The market will likely test the euro's low so far this year (of $1.1704 marked on March 31)," said Jun Arachi, senior strategist at Rakuten Securities.

The dollar's broad rally came as U.S. Treasury yields spiked to three-week highs as surprising strong job openings on top of better-than-expected employment gains in July added to the narrative of an improving labour market.

Job openings, a measure of labour demand, shot up by 590,000 to a record-high 10.1 million on the last day of June, the U.S. Labor Department reported in its monthly Job Openings and Labor Turnover Survey (JOLTS).

That followed Friday's non-farm payroll report showing jobs increased by 943,000 in July, above the 870,000 forecast by economists in a Reuters poll.

Atlanta Federal Reserve Bank President Raphael Bostic, the first Fed speaker after those jobs data, said on Monday he is eyeing the fourth quarter for the start of a bond-purchase taper but is open to an even earlier move if the job market keeps up its recent torrid pace of improvement.

Boston Federal Reserve Bank President Eric Rosengren was equally forthright, saying that the U.S. central bank should announce in September that it will start reducing its $120 billion in monthly purchases of Treasury and mortgage bonds in the fall.

U.S. consumer inflation data due on Wednesday will be investors' next focus, with Wall Street expecting core annual inflation to ease to 4.3% in July after having soared to a three-decade high of 4.5% in June.

The dollar held firm against the yen at 110.32 yen, near its highest level in about two weeks.

"We probably need to see U.S. bond yields rising much higher for the dollar to test its previous high above 111 yen," said Minori Uchida, chief FX analyst at MUFG Bank.

Sterling slipped to $1.3846 though the British currency held firmer against the euro, staying at 0.8474 pound having hit a 1-1/2-year high of 0.8461 on Monday.

The Australian dollar fetched $0.7331, near its 4-month low of $0.72895 touched last month while the offshore Chinese yuan stood near one-week lows at 6.4845 per dollar.

The New Zealand dollar also slipped back to $0.6975 from last week's high near $0.71, but expectations of a rate hike by the country's central bank next week propped up the currency against many other rivals.

Elsewhere, bitcoin slipped 1.3% to $45,711, after having reached its loftiest level since mid-May on Monday.

Ether lost 1.8% to $3,111.